when closing or found the property

Question

what is needed to finalize and what to look for? put it under your LLC or your name? what aspects to loof for to see a ROI - what is the formula,

Total Rent - (expenses/month) = Cash Back

is that a correct formula?

N/A N/A · Answer

thanks - I am in the process of closing on a house and soon to get started on showing the house to the public for renting, soon I hope to earn a good income on the house more updates to come soon

Ryan Webber · Answer

To finalize the initial process of a deal, a signed contract by both parties is necessary.  After that the title company will need a copy of the contract to start title work on the property.  Any lender requirements of the property are taken care of in this time period, also (appraisal, survey, insurance etc.).  After everything is clear, then closing occurs where the seller signs a deed to the buyer.  The buyer signs a note and deed of trust for the lender.

Putting it under an LLC or under your own name depends on your investment strategy and your lender's stipulations.  Many conventional loans will either not allow you to put a property under an LLC or will charge you points on your interest rate to do it.

Your Return On Investment (ROI) or more accurately your Cash on Cash Return (CCR) is factored by first figuring your cash flow on the property.  Take the gross income (rents, laundry, etc.) for the property and subtract ALL expenses (mortgage, taxes, insurance, utilities, maintenance, vacancy, management, etc.).  This number is your cash flow on the property.  Now annualize it and divide it by how much initial money out of pocket it required of you to do the deal.

Here's an example:  I make $2,000 per month in rental income, and I have $1,500 in expenses per month.  So I have $500 cash flow monthly (2,000-1,500).  I then annualize my cash flow (multiply it by 12), so I have $6,000 per year cash flow on the property.  Now let's say I put $15,000 as downpayment, and I had $5,000 in closing costs.  So I had $20,000 out of pocket initially.  I take my annual cash flow of $6,000 and divide it by my out of pocket expense of $20,000, which means I have a 30% CCR or ROI, whichever you prefer.